Dr WOODRUFF – I might have heard correctly that you said the financial investments for MAIB were $1.88 billion before the COVID-19 period and is now at $2.66 billion. Is that what you said?
Mr FERGUSON – I don’t think I said $2.66 billion.
Mr CHALLEN – It’s $2.06 billion.
Dr WOODRUFF – Okay, $2.06 billion. That is still a substantial increase. It’s a very strong position to be in. Given that we are so far out of step with workers compensation, why wouldn’t we look at continuing the situation for people who have suffered motor vehicle injuries in the same way as we would do for people in workers compensation?
Mr FERGUSON – Thank you, Dr Woodruff. I’ve answered to the extent of my knowledge, Mr Kingston would you like to add to that. We have a scheme and it’s strongly supported. I need to be prudent in managing it so that it is as sustainable as it needs to be for the future without putting unnecessary extra pressure on premiums. Mr Kingston if you’d like to add to that. Your expertise about how our scheme compares would be welcomed.
Mr KINGSTON – Most of the scheme have some sort of similar cap in place. The reason being, in going back in history for most CTB schemes, most general claims would settle within a couple of years. Five years for a scheduled benefits case with people still requiring full wage displacement or high wage displacement would either mean they have significant injuries and are more likely to be in our lifetime care scheme and we look after them for the rest of their lives, or if there is common law that they can prove negligence, they can then settle for future economic loss, as part of their common law case. The amounts we pay through benefits are set, but there are other avenues for people to recover future earnings loss through common law or they can be looked after for life, through our lifetime care scheme.
For our common law scheme we target about 24 months to close those common law claims, so that people can get on with their life, get their money and move on. That’s our aim. It’s up to them when they want to bring the case but if they’ve done that in 24 months and we’ve been paying wage disbursements to them then they can roll their future economic loss into their common law claim. That’s probably why it was set like that many years ago in the legislation.
Dr WOODRUFF – Minister, the recent 2021 MAIB pricing policies investigation draft report by the office of the Tasmanian Economic Regulator (OTER) notes MAIB has a target profit margin of 10 per cent. That is described in the executive summary on page 8. OTER also noted that this is at the upper end of targets of similar schemes in Australia, and also noted that MAIB’s financial position is set relatively conservatively, and also that a lower target profit margin would be reasonable. Do you have any response to these observations? Given MAIB’s strong profits over the last decade, would MAIB consider a lower target?
Mr FERGUSON – Thank you, Dr Woodruff, and I will ask the Chair and/or the CEO to answer substantively. I will just observe that we do actually now have, thanks to excellent people and great design by our forebears in this parliament, in the design of the scheme, and the probing management of it, that we do now have the lowest premiums in the country. We are very proud of that. We also importantly, when MAIB makes a profit, it does not get sent off to superannuation funds. It gets sent to the Tasmanian government for the prudent use on government services. So, there is definitely a satisfaction in government with the way that the system is working for us.
If there is anything further to add, particularly in relation to comments made by the Economic Regulator, I am happy for either the Chair or the CEO to respond further.
Mr KINGSTON – With the Economic Regulator, that is undertaken every four years. We provide all of our pricing. So, unlike most commercial insurers, we show them everything that we have got openly. We then have our actuary run through and come up with what they call the breakeven premium and the asked profit on top of that.
All CTP schemes ask for a profit like that because the numbers are very difficult to get exactly right. There is always a margin in all insurers, but particularly in long-tail CTP insurers there is. We then pay for the Economic Regulator’s actuary to put over our actuary’s results. Both actuaries confirmed that the profit margin was reasonable in their final report and confirmed the figures. That is two pre-eminent long-tail CTP actuaries in Australia saying that the overall pricing that we put together was appropriate and that the profit margin was appropriate as well.
Mr CHALLEN – It is important to remember that the regulator does not set our premiums. The regulator sets a cap above which our premiums cannot go. The MAIB has worked hard over the last decade or so to keep our premiums as low as possible. On several occasions, we’ve reduced the premiums and, in every year, for the time I’ve been on the board, we’ve had the option within the regulator’s determination to increase premiums by average weekly ordinary time earnings. In the time that I’ve been on the board, we’ve never done that. We are working hard to keep our premiums as low as possible.
The link between our financial performance and premiums is not as lock step as you would think it is because our financial performance fluctuates, particularly with how the investment market performs. We’ve a little disengaged our premium setting from our financial performance. They’re not totally unrelated but they’re not as lock step as you might think.
Dr WOODRUFF – Thank you. That 10 per cent is a target. Looking at MAIB’s strong profits over the last decade from a lay perspective, it looks as though the average profit margin would, over that period, significantly exceed 10 per cent. Is that the case? Do you have any details on MAIB’s average profit margin over the last decade or thereabouts?
Mr CHALLEN – The average profit margin was presented to the regulator for our premium setting. The premiums we collect cover the cost of claims. The investment profit we generate which leads more to our overall profit is unrelated to that as the Chair went through.
What we sent to the regulator was, it was about 10 per cent and it’s been within that range for quite some time on premiums and claim costs because that’s what we’re trying to match up under the regulator. The overall profits of the MAIB as a business are largely driven by any investment returns which are separate to the premium setting process.
Dr WOODRUFF – That’s what I was referring to, that latter.
Mr CHALLEN – The average profits for us over the last few years?
Dr WOODRUFF – Yes, over that last decade rather than year-on-year.
Mr CHALLEN – I’m not sure if we have a decade –
Dr WOODRUFF – Okay, I’ll take whatever you can give.
Mr KINGSTON – Our profit or loss before tax over the last five years: in 2016 17 it was $165.678 million; 2017 18 was $137.236 million; 2018 19 it was $38.4 million; in 2019 20 it was $9.7 million; and for this year, as previously noted, it was $302.298 million.
